VLM Food Trading Int'l, Inc. v. Ill. Trading Co.

• Decision Date: 10 April 2014
• Docket Number: 13–1697.,Nos. 13–1799,s. 13–1799
• Citation: 748 F.3d 780
• Parties: VLM FOOD TRADING INTERNATIONAL, INC., Plaintiff–Appellee/Cross–Appellant, v. ILLINOIS TRADING COMPANY, The Obee Family Partnership, and Lawrence N. Oberman, Defendants–Appellants/Cross–Appellees, and Transportation Alliance Bank, Inc., d/b/a Tab Bank, Defendant/Cross–Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

748 F.3d 780

VLM FOOD TRADING INTERNATIONAL, INC., Plaintiff–Appellee/Cross–Appellant,

v. ILLINOIS TRADING COMPANY, The Obee Family Partnership, and Lawrence N. Oberman, Defendants–Appellants/Cross–Appellees,andTransportation Alliance Bank, Inc., d/b/a Tab Bank, Defendant/Cross–Appellee.

Nos. 13–1799, 13–1697.

United States Court of Appeals, Seventh Circuit.

Argued Nov. 7, 2013.

Decided April 10, 2014.

Michael J. Keaton, Attorney, Keaton Law Firm, Deerfield, IL, for Plaintiff–Appellee/Cross–Appellant.

George L. Grumley, Attorney, Grumley Kamin & Rosic, Chicago, IL, for Defendants–Appellants/Cross–Appellees.

Before BAUER, MANION, and SYKES, Circuit Judges.

SYKES, Circuit Judge.

VLM Food Trading International, Inc., is a Canadian agricultural supplier. Illinois Trading Company, a reseller of agricultural produce, bought frozen potatoes from VLM but encountered financial difficulty and did not pay for them. VLM sued Illinois Trading, its president, and another entity in a position to control the company (collectively, “Illinois Trading”) for the outstanding balance—about $184,000—owed on the contract. The complaint alleged four counts, two of which were based on the Perishable Agricultural Commodities Act (“PACA”), a depression-era law that creates a statutory trust in favor of the seller when a buyer purchases agricultural goods on short-term credit. 7 U.S.C. § 499e(c)(2). To protect the assets of the statutory trust, VLM also moved for a preliminary injunction. See id. § 499e(c)(5).

Illinois Trading had tried to stem its financial troubles by obtaining loans from the Transportation Alliance Bank (“TAB Bank”), giving the bank a security interest in its assets. By the time VLM brought its lawsuit, TAB Bank had already seized all of Illinois Trading's assets. But the PACA-created trust made VLM's claim superior to the bank's security interest. See Patterson Frozen Foods, Inc. v. Crown Foods Int'l, Inc., 307 F.3d 666, 669 (7th Cir.2002). VLM amended its complaint to add a fifth claim—against TAB Bank—for seizing and converting PACA trust assets.

Prior to this amendment, however, VLM had moved for a consolidation of the preliminary-injunction hearing with a trial on the merits. The district court granted the motion. Everyone understood that the consolidated injunction and merits hearing pertained only to Counts I through IV—the claims by VLM against Illinois Trading—and not Count V, which pertained to the bank. When the district court issued its opinion, however, it not only resolved Counts I through IV, it also entered judgment for TAB Bank on Count V, holding that VLM failed to present any evidence on that claim. VLM appeals the judgment on Count V, arguing that it had insufficient notice that the court would treat the consolidated preliminary-injunction/merits hearing as a final hearing on that claim. We agree and reverse with respect to Count V.

The district court also awarded VLM its attorney's fees and interest on the unpaid balance based on contractual provisions in VLM's invoices. Illinois Trading cross-appeals on this issue, arguing that these provisions never became a part of the parties' contract. Complicating this question is a choice-of-law dispute: Illinois Trading argues that the controlling law is the United Nations Convention on Contracts for the International Sale of Goods, April 11, 1980, S. Treaty Doc. No.. 98–9 (1983), 1489 U.N.T.S. 3 (“the Convention”), ¹ while VLM argues that Illinois's version of the Uniform Commercial Code controls. The relevant provisions in the Convention are materially different from those of the Uniform Commercial Code. The district court applied Illinois law and found that the invoice provisions regarding attorney's fees and interest became a part of the contract. We hold that the Convention controls and therefore reverse and remand for further proceedings.

I. Background

VLM filed its complaint against Illinois Trading on October 10, 2012, stating four separate claims for money owed on unpaid invoices. Two of the claims (Counts I and IV) were based on a PACA statutory trust arising from VLM's shipment of potatoes to Illinois Trading. The following day VLM moved for a temporary restraining order and preliminary injunction to protect the trust assets. At the same time, VLM asked the court to consolidate the injunction hearing with a trial on the merits. SeeFed.R.Civ.P. 65(a)(2). The court granted a temporary restraining order and scheduled a preliminary-injunction hearing for October 25. On October 22 VLM amended its complaint, adding a fifth claim against TAB Bank for seizing and converting assets subject to a PACA trust (Count V).

Over the next few months, the district court repeatedly postponed the preliminary-injunction hearing at Illinois Trading's request. At some point Illinois Trading's counsel withdrew, so the court again rescheduled the hearing, this time to January 15, 2013. In the same order, the court granted VLM's consolidation request, specifying that the hearing “shall be consolidated with a hearing on the merits as to the [Illinois Trading] [d]efendants only and not the Bank. The Bank reserves its rights to litigate all issues in dispute.”

Illinois Trading neither retained new counsel nor responded to the complaint by January 15, so VLM requested an entry of default judgment. TAB Bank objected because it feared that a final resolution of Counts I and IV against Illinois Trading would prejudice its ability to defend itself against Count V. Count V depends on the existence of the PACA trust alleged in Counts I and IV, but TAB Bank disputes the validity of VLM's PACA license. TAB Bank feared that if Counts I and IV were resolved, it would be precluded from defending on this basis when the court addressed the merits of Count V. The district judge responded by saying that he didn't know what effect a default judgment would have on the bank, but that Count V would be addressed at a later stage in the litigation. The judge granted the default judgment and rescheduled the preliminary-injunction hearing for February 19. The judge reiterated that the injunction proceedings were consolidated with a trial on the merits, though he did not at this time remind everyone that the consolidation concerned only the claims against Illinois Trading, not the claim involving the bank.

Illinois Trading finally got a new lawyer and moved to vacate the entry of default. It did not dispute the amount owed but only whether certain attorney's fees and interest provisions in VLM's invoices became a part of the contract. On February 12, during a hearing on this motion, Illinois Trading's new lawyer also requested an extension to get up to speed. In response VLM's lawyer proposed going forward with the hearing because it would be narrowly focused on the attorney's fees and interest provisions. The judge vacated the default judgment with respect to Illinois Trading's president only and declined to postpone the February 19 date for the hearing. VLM's lawyer did not object, but requested that the court “keep all three [Illinois Trading] defendants together for the narrow hearing next week. Then we can just leave the bank kind of off on its own.”

On February 15 TAB Bank filed a motion for a continuance of the February 19 hearing, or in the alternative, asked that the hearing be limited to Counts II and III. The bank again explained that it planned to contest the validity of VLM's PACA license and reiterated its fears about preclusion. The contents of the continuance motion make it clear that the bank's counsel understood that the hearing would address Counts I through IV and that Count V would be heard at a later time:

Any ruling made on Counts I[ ] and IV would be binding upon TAB Bank[,] and any finding of fact relating to VLM Food Trading's alleged PACA rights would be prejudicial to TAB Bank and would[ ] in effect become the rule of law of the case, and in essence TAB Bank would be precluded from objecting to that determination at a later date based on the theory of res judicata.

(Emphases added.) The motion also stated that “TAB Bank's rights in defending Count V would be severely prejudiced” and that VLM was “seeking a judgment on all counts against [the Illinois Trading] [d]efendants.”

At the beginning of the hearing on February 19, the district court denied TAB Bank's continuance motion. The bank's attorney asked the judge to clarify whether the judgment would be binding on the bank. The judge said he didn't know and would rule on the matter later, but that the hearing on the remaining issues between VLM and Illinois Trading would go forward. With respect to the bank's argument about the legitimacy of the PACA license, the judge said: “Anyway, that's for another day. It's not part of this case, so let's proceed.”

VLM and Illinois Trading presented evidence regarding the few remaining issues on Counts I through IV, but nothing on Count V against the bank. TAB Bank itself presented no evidence. After the hearing the district court set a deadline for posthearing briefs. Both VLM and Illinois Trading filed briefs focusing solely on Counts I through IV. TAB Bank did not submit a brief.

On March 5 the district court issued an order entering final judgment in favor of VLM on all claims against Illinois Trading and awarding attorney's fees and interest. Surprisingly, however, the court also found in favor of TAB Bank on Count V because VLM “failed to present any evidence or testimony” and “ha[d] not presented any arguments regarding TAB Bank's liability in its post-hearing brief.” VLM immediately moved to alter or amend the judgment with respect to Count V because the scope of the hearing had been limited to its claims against Illinois Trading and did not include its claim against the bank.

Rather than acknowledging the district court's mistake, TAB Bank seized the opportunity to secure the advantage unwittingly bestowed on it by the court. Opposing VLM's motion to amend...